J.C. Penney sales grew 3.4% during the holiday period

Dive Brief:

J. C. Penney on Thursday announced that same-store sales rose 3.4% for the combined nine-week period ending Dec. 30 over the same period last year. Sales were led by home, beauty and fine jewelry, the company said, adding that its apparel categories "continue to demonstrate improved comp performance, particularly in women's and kids," the company said.
But the retailer lost some market share (0.5%) in the two weeks after Thanksgiving, according to analytics company Earnest Research, which tracks real consumer transaction data. In that period, Amazon gained the most market share (2.6%), followed by Best Buy (0.2%), while Walmart lost 1.7%, Target lost 0.6% and Macy’s lost 0.5% market share. Among department stores, Kohl’s gained the most market share (+1.4%) and Nordstrom lost the most market share (1.1%), according to that report, which was emailed to Retail Dive.
For the fiscal year, Penney in October said it expects earnings of 2 cents to 8 cents per share and for same-store sales to remain flat or drop by as much as 1%. The company estimates costs of goods sold to increase 100 to 120 basis points, compared to 2016, and general corporate expenses to decrease 1% to 2%. On Thursday the company reaffirmed that outlook.

Dive Insight:

J.C. Penney closed out the year in some turmoil, letting go longtime chief merchant John Tighe (in fact axing that position completely) in order to "streamline decision-making and promote greater agility within its merchandise buying teams."

In the post-Thanksgiving period, according to Earnest's research, the retailer grew its digital sales percentage of overall sales from 17.8% last year to 20.8%, which could cut into its margins. In October Penney cut its outlook for the third quarter as the department store moved to clear inventory, via discounting, in women’s apparel sections. The holidays brought some relief after a few tough months, however.

"Inventory levels and discounting appeared to be well managed over the holiday period —something we believe will help protect margins for the quarter," GlobalData Retail analyst Anthony Riva said in an email to Retail Dive, adding that Penney's holiday results provide it with " some much-needed breathing space." A pparel sales, such a weak spot for the retailer, improved over the period, particularly in kids, GlobalData Retail found. But it remains an area where it's "underweight and is suffering from weak conversion" and where it needs to improve this year, he also said.

CEO Marvin Ellison in a statement Thursday said he is "very encouraged" by the company's overall sales in the period. "We are also pleased by our e-commerce business that continues to outpace prior year results with double-digit sales growth, largely driven by sought-after gifting categories such as fine jewelry, home decor and luggage, toys, boots and athletic footwear," he said. "Our ability to execute e-commerce fulfillment from 100% of our brick and mortar stores helped fuel the growth in e-commerce for the holiday season. We remain confident that our strategic initiatives are taking hold and resonating with customers."

Except for its Sephora concessions, Penney has struggled to connect with shoppers, particularly in apparel, and some analysts have been clamoring for the department chain to move more quickly in its turnaround. In August, Neil Saunders, managing director of GlobalData, said that Penney had "much further work" it needed to do to improve retail sales, where womenswear especially remained "lackluster" in a flooded market often full of discounted merchandise.

In the long-run, J.C. Penney and its peers face steep existential challenges. Mass merchants have been cutting into their share for years. Amazon and other online players have been stealing apparel sales. And off-price sellers have been growing like gangbusters, as customers seek out steep discounts and "treasure hunt" thrills. That growth has and will likely continue to come at the cost of department store sales, including at J.C. Penney. That means that 2018 will be something of an uphill climb.

"[The holiday sales] show that the retailer can succeed if it is able to draw people into stores and online. However, as customer traffic drops back to normal levels, the chances of sustaining this performance do not look favorable," Riva warned. "JCP has a lot more work to do in reenergizing its proposition across 2018 to give people reasons to visit."